Picasso

Not sure if people here recall (I can't find a clean article but here's a link http://www.ianfraser.org/kyle-bass-all-the-asymmetry-is-in-the-world-lies-in-japan/) but Kyle Bass had this huge bet that Japanese bonds were this big asymmetric bet on the verge of collapse. Well 10Y JGB's just went negative. Who knows what happens to the yuan but it seems highly unlikely that this trade is going to work out quickly. If anything the Chinese will probably do anything they can to screw with the funds shorting their currency. Seems kind of silly to announce that kind of bet to the world knowing how the Chinese operate.

I understand how they decay but also understand these things get you killed on a short when they compound the other way over short periods of time. Go look at investment grade credit spreads, they're blowing out. Either stocks go down or bonds start going up. Equity markets are still pretty optimistic at these prices but hey anything can happen.

Gun to my head, I think SDS does pretty well over the next several months.

I've been thinking the same thing. How does this trade back above $85? Easy way to hedge and short out the energy markets.

Probably a rough year or two (or more) for Berkshire, but over 10+ years I'd say Berkshire earns way more than Facebook. Problem is the starting point. Buffett at the end of his time on this planet, insurance isn't that great today, lots of secular headwinds, and now some tough cyclical headwinds. If it turns out to be Facebook then Zuckerberg will be worth hundreds of billions. Also the combined market caps of these new advertising stocks is discounting a hell of a lot in the future (close to a trillion between just GOOG and FB). I think investors are taking a ruler out too far into the future when trying to value these stocks. Great companies but I'd rather buy Berkshire and leave it alone for ten years.

As long as the S&P 500 doesn't start banging my wife. Way to kick a value guy while he's down.

Done. He's transitioning the fund from deep value to deep YOLO.

Berkowitz's performance started to decline when he moved to Florida, started wearing contacts, and was busy designing his new office/museum... Ackman's performance started to decline when he was featured on the cover of Bloomberg magazine with the caption "How do you like me now?" and decided he was going to flip a $100 million condo in NYC. Fund of funds should add "is the manager swapping their glasses for contacts" on their due diligence reports.

That's very true Grey. It's not good enough to stay good at the game, you have to constantly get better. Also most of those guys had their best returns on much smaller AUM.

Why does my performance for the year matter in this conversation? My point is that guys like Buffett or Greenblatt have stuck to their process and many others have not. Baupost still has a great process but Mooney dropped the ball big time. Berkowitz has started playing with lotto tickets (Sears, Fannie and Freddie, St. Joe, some resource company I forget) when it's clear those investments are long shots and outside his circle of competence. If he stuck to his old process he'd be looking at much different performance figures. I'd assume for the better. His 5 & 10 year numbers (since he changed his process) are absolutely shit and sorry but that's a long enough timeframe to know you're not doing something right. Ackman also changed his style to a more "quality over value" by loading up on a bunch of roll ups at the very top. He drank too much of his own platform kool aid and has even called this new process "Pershing 3.0" which shows you it's not the same fund as before. His insider trading on AGN was the only thing that has saved his performance the past couple years. Take that out and his numbers have been poor since he changed into Pershing 3.0. Anyone who has followed Einhorn for a while knows that his process isn't as good as it used to be. There's a lot more laziness and sloppy work involved. Whether it's assumptions he makes on cyclical stocks like MU, CNX, GM there are big flaws that one could point out with a little bit more work. My point is that the core process works (finding a margin of safety, staying in your circle of competence) but it fails when you start moving outside of it. Stick to what works even though you might feel like you're smart enough to take on some FNMA legal battle. All that time could be spent finding simple ideas that are trading very cheaply.

A lot of those guys have either lost their touch or changed their investing style. Klarman - His energy/resource team is taking on really silly bets. Now they've invested in the debt of Aubrey's newest nat gas scheme. I predict that in 2017 Jim Mooney leaves the fund. Greenblatt - He's stuck to his process, probably does fine in the future. Berkowitz - This guy has lost his mind. Literally just throwing crap at the wall hoping it sticks. Buffett - He's stuck to his process, will do fine (understatement there). Longleaf - They basically take macro bets now, what else can you expect to happen? Einhorn - His heart doesn't seem in it anymore. His investment due diligence seems to get lazier and lazier. Ackman - Also changed investing styles and started drinking too much of his own kool aid. I think 90% of various "value" underperformance is laziness and style drift.

FAST EXPD WMT

I'm all about the Pabrai poor risk management hate train. Choo choo!

More SXC. Didn't think I would get another shot at this price.

I think it's a backward justification for owning GM. You could have purchased AMZN back in 2005 with a sky high P/E and the current free cash flow can easily justify it as a savvy investment. Also Tesla is probably going to grow annual revenue at 50% for the next few years. A 100x multiple today on that future revenue at an 8% margin doesn't scream like the worst thing in the world. As long as Musk is CEO there won't be any profits to try and value it from a P/E approach. But on the topic of cash flows, how does he get $10-12 billion in GM free cash flow? And a P/E of 4? Is he just backing out the cash that GM says they need to set aside for any future downturns? I'm confused on that one.

Why does Pabrai keep putting P/E multiples on FB or AMZN, etc. It's disingenuous to the cash flows. Not saying they're cheap but don't get the P/E approach here.

What do you think is causing the spread to come out? It was wide from the start and just been getting wider... Not really complaining here, I've wanted to buy more but not a lot of liquidity on a tight bid/ask spread until today.

Thanks. I think this is one of those stocks that will start working without seeing some absurd 30% FCF yield scenario; people will just miss the move (except for you?). Not sure how I feel about valuing this on the enterprise value though. There are various busted 2000 era tech stocks with low to negative enterprise values and it's a drag to the equity returns because you can never get a fully geared up return to earnings on the diluted share count until they repurchase a ton of stock or pay out a special dividend. Despite the aggressive repurchases it will take a while to get to a point where you can get an attractive FCF/share versus FCF/EV. That said it seems to imply a short-term margin of safety and you have some optionality so it looks interesting. Funny to think how much Google wanted to pay for this business in the past.

You can say GRPN doesn't trade on FCF but isn't that how we want to figure out what it should be worth in different scenarios? I can see how some good earnings release can send the stock up 30% "just because that's how it trades," but doesn't that just make this a shot in the dark against an okay backdrop of terrible sentiment and a so-so valuation? I've had this one on my list of busted IPO's that have a shot at doing well for new shareholders but I can't get past the cash generation here. These coupon stocks have a history of ripping every so often as the shorts get creamed. That said the whole sector is busted up right now, including the likes of SALE etc.

Here's my crazy idea for 2016. SHLD. People on this board are now sick of it. Eddie is buying up a lot of stock along with Lands End. SYW functions a lot better. This isn't a sum of the parts valuation, it's about how much cash flow he can get to the 106 million shares left at the current price of $20. With Seritage now up an running, I think we can see a yieldco relationship between the two companies with a couple asset swaps beneficial to both companies. When SHLD had a market cap near $20 billion, everyone was thinking how many billions Eddie could generate on that value. Now at $2 billion everyone is thinking how many billions he's going to continue losing. I want to say I'll go long around $15 and I'd feel pretty good about a margin of safety. Now I'm just waiting for everyone to say I'm out of my mind so I feel better about buying it when/if it trades down to $15 or lower.

I'd probably put my thoughts on those specific CHK bonds on the CHK thread when I'm done buying. There is a price where I think your concerns would make me negative on the bonds.

By the way, buying odd lots of bonds will usually get you a better price on the kind of mispriced bonds that people here would probably be looking to buy. I've been trying to buy a million face of CHK bonds today and I can only get around 400k at $29 and I have to pay up for the rest. If I wanted to only buy 50k face I could have taken $28.

Not a bond broker. Obviously if you're paying 5% upfront for efficiently priced assets on a product that can't beat the market it's not good to pay fees. The reason why there is a spread on the bonds is because there isn't a ton of liquidity. That bid/ask spread isn't an accurate measure of where it should be valued most of the time. Oddball, how many stocks do you buy where the bid/ask spread is something you can drive a truck through? Even if you buy it at the price you want through a limit order, you can't immediately resell it at the same price. Is that a deterrent for something priced at a big discount to intrinsic value? Anyway not going to argue this. The more people that think this way the better. If I find an asset at a price I find compelling I could care less about "fees."

Don't get too hung up on a 3% spread when you're buying bonds at $50-65. That's like saying you won't buy cheap real estate because of the spread on the buy/sell. Just make sure the price is attractive enough to get you the returns you're looking for.

But on the topics of dividends, management stated that SXCP will keep paying out distributions as long as customers aren't defaulting on them. At a 30%+ yield currently it is covered around 1.4x. I think you'll see that yield for a while but you never know. SXC has made it clear they plan to support SXCP and they generate enough cash to do so. AKS could put in a 2-year notice in 2016 but around 80% of their blast furnace coke comes from SunCoke. It doesn't make a lot of sense to put those furnaces in danger for imported coke which isn't price competitive for the risk involved. They also have some small recently purchased capacity with Dearborn, but not enough to replace SunCoke. The steel industry is also a relationship business and I can't see AKS just throwing their critical supplier under the bus. Usually there is some volume + extra contract duration in negotiation but AKS isn't upping their capacity for that to make sense. The Convent terminal also has some risks, but there are also take-or-pay contracts with the rail connected to that terminal. It's the only terminal in that area with direct rail access and I don't know where Murray/Foresight would be looking to sell their coal if not into the export market. I think SXCP is still really attractively priced here and might buy more but it's already a big position and I'm moving into different energy related bonds.